Lord Hodgson of Astley Abbotts (Con):
My Lords, it is with a strong sense of being tail-end Charlie that I rise to move Amendment 96ZAA, which follows on from a point that I made during the Second Reading debate on the Bill as long ago as Wednesday 18 June. It is a simple probing amendment at this stage, but one with some far-reaching practical and, indeed, psychological consequences. The amendment gives the Secretary of State power to establish a sovereign wealth fund and lays down certain basic parameters and criteria for its operation and governance.
For those unfamiliar with the term “sovereign wealth fund”, it means a fund created by a state to receive all or part of the revenue or profit from a particular source or activity. It operates under the auspices and laws of its host state. Its assets remain in that state’s ownership and those who manage the fund are answerable for their performance. To be absolutely clear from the start, the amendment does not propose the creation of an uncontrolled or uncontrollable body that can charge about like a rogue elephant.
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Before I turn to the details of the amendment, a word on the background. Every country has an asset base that varies according to geography, geology, history, culture and so forth. Our asset base in this country includes our fellow citizens, their skills, entrepreneurial drive and energy. We hope and trust that these abilities
will be everlasting and preserved by succeeding generations. Successive Governments try to ensure that this is so by changes in the education system and a range of other socioeconomic policies. Our asset base will also include our built assets, which we have just been discussing in my noble friend’s response to the previous amendment—our roads, bridges, airports, schools, hospitals and great public buildings such as the one your Lordships are occupying this afternoon. As we have heard, these require funding for their construction. They also require a steady stream of funding for their maintenance over the years and, in the fullness of time, they become no longer fit for purpose and must be replaced.
Finally, there are our natural assets and resources. These can be subdivided into two categories. First, there are those that are, to all intents and purposes, infinite. They are the sun, wind and rain, the flow of our rivers, tides and the movement of the waves—all of which can be harnessed in different ways to the benefit of us all. However, there are also finite natural resources. The extent to which this country benefited in its industrial revolution from its huge reserves of coal—to which the noble Lord, Lord Whitty, referred earlier—has been well documented. In the 1970s, we discovered another great gift from nature—North Sea oil. At that time, it was anticipated that by this date, 2014, the oil would run out. However, thanks to new technology and the rising price of oil itself, it has proved possible to find and extract profitably a far greater volume than originally forecast. Today, while we have extracted 40 billion barrels, it is estimated that 24 billion barrels remain.
However, the important point, notwithstanding the above, is that it is a finite resource and it will one day run out—probably 25 or 30 years from now. Successive Governments since the 1970s have benefitted greatly from this gift from nature. Estimates vary as to the total resources and revenue streams but we can, for the purposes of our discussion, work on a figure of around £350 billion. Every penny of that money has been spent. We can discuss whether it has been spent wisely or poorly, but it has gone, and not a penny has been put aside formally for tomorrow.
Across the North Sea, the other country that has benefitted from this gift from nature, Norway, has taken a different approach. To be fair, it is a very different country to the United Kingdom. For a start, Norway’s population is much smaller—only about 10% of ours—and the amount of oil and gas discovered there is far greater. In consequence, the reserves per head of population are much greater indeed. Nevertheless, after a fierce debate, the Norwegian people, through their Parliament, decided to set up a sovereign wealth fund to receive part of the benefit from the country’s oil and gas reserves. The first money started to flow into it as recently as the mid-1990s. Noble Lords may be surprised to learn that in the short 20 years since, the Norwegian sovereign wealth fund has grown to approaching $900 billion—£600 billion—and is confidently expected to reach $1 trillion within the next few years. It returns about 4% per annum to the Norwegian state and consequently is generating around $30 billion a year, about £20 billion. To put that figure in context—this is not a party-political point—the Leader of the Opposition suggested in his party conference
speech that we needed £2.4 billion to, I think in his words, “save the NHS”. I am not going to argue about whether that is going to save it or not. I put it in context just to realise that the Norwegian state receives about 10 times that—between £20 billion and £25 billion a year every year, and will do so in perpetuity. It is 10 times what the Leader of the Opposition thought we needed to save the National Health Service.
We can do nothing about North Sea oil: it is gone. We set it up the way we did and every penny we get from now until the end of time will be spent. But now nature has given us a potential second windfall—natural gas extracted as a result of the development of the new fracking processes. I argue in my amendment that we should learn from the decisions of the past as well as from the Norwegian example and create a sovereign wealth fund in the United Kingdom to receive part of the proceeds from this new development.
I do so on three principal grounds. First, despite every effort, there will always be lumps and bumps in government spending plans, especially those related to infrastructure projects. Returns from a sovereign wealth fund could be used to help plug or iron out some of these holes and bumps.
Secondly, it would work as an exemplar of what every Government are always exhorting us as individuals to do. Every Government say that we are living longer, that old age is expensive and consequently we need to forego immediate consumption in favour of saving. But Governments find it conspicuously hard to follow this advice on their own part. A sovereign wealth fund would at least be an example of the Government following the advice that they so freely give to their citizens.
Thirdly, and this is the most important point, I do not believe that these revenue streams are ours to spend selfishly on ourselves. The shale gas reserves have been built up over billions of years and should not be dissipated in less than half a century. This is an argument about fairness—about intergenerational fairness—leaving a legacy for our children, grandchildren and so on from assets that are surely as much theirs as they are ours.
With those background points, let me turn to the details of my amendment. First, it is permissive in that it gives the Secretary of State powers to establish a sovereign wealth fund but does not require him to do so. It requires those regulations that enable the establishment of a sovereign wealth fund to meet five key tests. Subsection (2)(a) requires that the fund receives no less than 50% of the revenue that the Government receive from shale gas extraction. This is the fairness argument again: 50% of any revenue can be spent by and on us and 50% needs to be left for future generations. Some might argue that 50:50 is already too generous to ourselves and that 80:20 might be more appropriate.
Subsection (2)(b) requires that the fund invests with the long term in mind and its assets should specifically not be used for short-term monetary policy such as quantitative easing. Subsection (2)( c) permits the fund to invest overseas as well as in the United Kingdom and subsection (2)(d) limits the maximum annual payout of the fund to 4% of the principal sum. A well
managed fund should over time hope to achieve a 4% growth rate and, if so, a 4% maximum distribution should enable the fund to operate in perpetuity. More prosaically, the 4% ceiling prevents the fund from being raided to provide funding in the short term for some pressing major infrastructure development—HS2 comes to mind.
Subsection (2)(e), most importantly, provides that the operations and activities of the fund must be absolutely transparent and open to public scrutiny. Reading the literature, it is clear that that this transparency has been a vital part of creating trust and confidence among the Norwegian public in the operations of their fund.
I suspect that the Government will be doubtful about this idea. Every Government will always want to be able to spend every penny they can lay their hands on. Further, I suspect that the Treasury will hate the proposal. Anything outside its complete control is to be resisted at all costs. But I suspect that the general public will like it. A sense of fairness is an important part of our national make-up. Public support in a period when all political parties will be writing their general election manifestos should not be sniffed at.
In September 2013, speaking at the John F Kennedy School of Government, Norway’s then Prime Minister Jens Stoltenberg said:
“The problem in Europe with the deficits and the debt crisis is that many European countries have spent money they don’t have. The problem in Norway is that we don’t spend money we do have”.
He went on to tell his audience that this happy state of affairs “requires … political courage”. It is that political courage that I am looking for from the Minister tonight. I beg to move.